Is there a case for privatization?

There has been a chorus of arguments in favour of privatization, to end corruption. However, recent reports indicate that even private companies are willing to engage in corruption. The dishonesty of a few private companies brings malice to the entire nation. Yet, what benefit does privatization bring?

Is there a case for privatization?

We are all aware the quality of work done by some of our state owned enterprises, whether it is CLW, DLW, ISRO, or DRDO, that is unmatched by the private sector. On the other hand, we have had numerous private companies, some getting attention for the wrong reasons.

Here is one article that indicates the reasons why privatization will not end corruption:

NEW DELHI: India, the second-largest exporter of over-the-counter and prescription drugs to the United States, is coming under increased scrutiny by American regulators for safety lapses, falsified drug test results and selling fake medicines.

Dr Margaret A. Hamburg, the commissioner of the United States Food and Drug Administration, arrived in India this week to express her growing unease with the safety of Indian medicines because of "recent lapses in quality at a handful of pharmaceutical firms."

India's pharmaceutical industry supplies 40 percent of over-the-counter and generic prescription drugs consumed in the United States, so the increased scrutiny could have profound implications for American consumers.

FDA investigators are blitzing Indian drug plants, financing the inspections with some of the roughly $300 million in annual fees from generic drug makers collected as part of a 2012 law requiring increased scrutiny of overseas plants. The agency inspected 160 Indian drug plants last year, three times as many as in 2009. The increased scrutiny has led to a flood of new penalties, including half of the warning letters the agency issued last year to drug makers.

Dr. Hamburg was met by Indian officials and executives who, shocked by recent FDA export bans of generic versions of popular medicines â€” such as the acne drug Accutane, the pain drug Neurontin and the antibiotic Cipro â€” that the FDA determined were adulterated suspect she is just protecting a domestic industry from cheaper imports.

"There are some people who take a very sinister view of the FDA inspections," Keshav Desiraju, India's health secretary until this week, said in a recent interview.

The FDA's increased enforcement has already cost Indian companies dearly â€” Ranbaxy, one of India's biggest drug manufacturers, pleaded guilty to felony charges and paid a $500 million fine last year, the largest ever levied against a generic company. And many worry that worse is in store.

"If I have to follow U.S. standards in inspecting facilities supplying to the Indian market," G. N. Singh, India's top drug regulator, said in a recent interview with an Indian newspaper, "we will have to shut almost all of those."

The unease culminated Tuesday when a top executive at Ranbaxy â€” which has repeatedly been caught lying to the FDA and found to have conditions such as flies "too numerous to count" in critical plant areas â€” pleaded with Dr Hamburg at a private meeting with other drug executives to allow his products into the United States so that the company could more easily pay for fixes. She politely declined.

India's drug industry is one of the country's most important economic engines, exporting $15 billion in products annually, and some of its factories are world-class, virtually undistinguishable from their counterparts in the West. But others suffer from serious quality control problems. The World Health Organization estimated that one in five drugs made in India are fakes. A 2010 survey of Delhi pharmacies found that 12 percent of sampled drugs were spurious.

In one recent example, counterfeit medicines at a pediatric hospital in Kashmir are now suspected of playing a role in hundreds of infant deaths there in recent years.

One widely used antibiotic was found to contain no active ingredient after being randomly tested in a government lab. The test was kept secret for nearly a year while some 100,000 useless pills continued to be dispensed.

More tests of hospital medicines found dozens more that were substandard, including a crucial intravenous antibiotic used in sick infants.

"Some of the fake tablets were used by pregnant women in the post-surgical prevention of infections," said Dr. M. Ishaq Geer, senior assistant professor of pharmacology at Kashmir University. "That's very serious."

Investigations of the deaths are continuing, but convictions of drug counterfeiters in India are extremely rare.

Satish Reddy, president of the Indian Pharmaceutical Alliance, said Indian drug manufacturers are better than the FDA now contends. "More rigorous enforcement is needed, for sure, but this impression that India is overrun with counterfeits is unjustified," Mr. Reddy said.

But Heather Bresch, chief executive of Mylan, which has plants in the United States and India, said regulatory scrutiny outside of the United States was long overdue. "If there were no cops around, would everyone drive the speed limit?" Ms. Bresch asked. "You get careless, start taking risks. Our government has enabled this."

For Dr. Hamburg, the trip is part of a long-running effort to create a global network of drug and food regulators to help scrutinize the growing flood of products coming into the United States, including 80 percent of the seafood consumed in the United States, 50 percent of the fresh fruit, 20 percent of the vegetables and the vast majority of drugs.

She has gone to conclaves of regulators from Europe and elsewhere to coordinate policing, but Indian officials have so far not attended such meetings.

Many of India's drug manufacturing facilities are of top quality. Cipla, one of the industry's giants, has 40 plants across the country that together can produce more than 21 billion tablets and capsules annually, and one of its plants in Goa appeared just as sterile, automated and high tech on a recent tour as those in the United States.

Cipla follows FDA guidelines at every plant and on every manufacturing line, and the company exports more than 55 percent of its production, said Yusuf Hamied, the company chairman.

But Benjamin Mwesige, a pharmacist at the Uganda Cancer Institute in Kampala, said in an interview in July that the institute had stopped buying cancer drugs from India in 2011 because it had received shipments of drugs that turned out to be counterfeit and inactive, with Cipla labels that Mr. Mwesige believed were forged.

He became suspicious when doctors began seeing chemotherapy patients whose cancer showed none of the expected responses to the drugs â€” and who also had none of the usual side effects. The drugs that had been prescribed were among the mainstays of cancer treatment â€” methotrexate, docetaxel and vincristine. Laboratory tests confirmed that the drugs were bogus, and Mr. Mwesige estimated that in 2011 about 20 percent of the drugs that the institute bought were counterfeit.

Enforcement of regulations over all is very weak, analysts say, and India's government does a poor job policing many of its industries. Last month, the United States Federal Aviation Administration downgraded India's aviation safety ranking because the country's air safety regulator is understaffed, and a global safety group found that many of India's best-selling small cars are unsafe.

India's Central Drugs Standard Control Organization, the country's drug regulator, has a staff of 323, about 2 percent the size of the FDA's, and its authority is limited to new drugs. The making of medicines that have been on the market at least four years is overseen by state health departments, many of which are corrupt or lack the expertise to oversee a sophisticated industry. Despite the flood of counterfeit drugs, Mr. Singh, India's top drug regulator, warned in meetings with the FDA of the risk of overregulation.

This absence of oversight, however, is a central reason India's pharmaceutical industry has been so profitable. Drug manufacturers estimate that routine FDA inspections add about 25 percent to overall costs. In the wake of the 2012 law that requires the FDA for the first time to equalize oversight of domestic and foreign plants, India's cost advantage could shrink significantly.

Some top manufacturers are already warning that they may leave, tough medicine for an already slowing economy.

"I'm a great nationalist, an Indian first and last," Dr. Hamied said. "But companies like Cipla are looking to expand their businesses abroad and not in India."

American businesses and F.D.A. officials are just as concerned about the quality of drugs coming out of China, but the F.D.A.'s efforts to increase inspections there have so far been frustrated by the Chinese government.

"China is the source of some of the largest counterfeit manufacturing operations that we find globally," said John P. Clark, Pfizer's chief security officer, who added that Chinese authorities were cooperative.

Using its new revenues, the F.D.A. tried to bolster its staff in China in February 2012. But the Chinese government has so far failed to provide the necessary visas despite an announced agreement in December 2013 during a visit by Vice President Joseph R. Biden Jr., said Erica Jefferson, an FDA spokeswoman.

The United States has become so dependent on Chinese imports, however, that the FDA may not be able to do much about the Chinese refusal. The crucial ingredients for nearly all antibiotics, steroids and many other lifesaving drugs are now made exclusively in China.

Privatization would depends on the sectors. There is no general solution.

But there is another angle to all these stories as well. Trade has been decentralized but now US and other nations are coming up with increased regulations to offset the trade gains of developing countries achieved through no discrimination clauses of WTO. It is called technical barriers to trade:WTO | Technical Barriers to Trade

One way to bring such malpractices under control is to slap them with heavy fine once caught. It is much easier for govt. to do random checks rather than develop a world class industry.

ISRO, DRDO are good institutions but there are also private players like SpaceX which have accomplished much more in much less time. There is no competition between public and private enterprises when it comes to efficiency(on average).

Both government and private enterprises have their good and bad points.

1. Private enterprises when allowed to become too big and powerful can control the government through proxy and destroy the whole nation for the profit of their shareholders.

2. Government enterprises on the other hand can become large, bloated terribly inefficient bureaucracies which suck wealth out of the economy and provide poor quality services.

The best approach is to have a mix of public and private enterprises depending on sectors like @Sakal Gharelu Ustad said.

The above analysis of course does not take globalization into context. What happens when you manage to regulate and keep your private enterprises small enough that they do not destroy the nation for their greed, but who now have to compete with a foreign MNC which is not similarly regulated in its own home country? There is pressure on governments to allow home grown companies to compete with foreign MNC's on their own soil, hence governments resort to creating special rules that favour local industry as much as possible. This could be by reducing regulation for domestic players or enhancing barriers for foreign players in whatever way they can while still adhering to the letter of WTO rules.

This approach results in the ballooning of the size and power of private enterprises which again leads to problem #1, i.e. destruction of the nation for greed, rise in inequality, disrespect for human rights and subordination of all values for the sake of efficiency, i.e. money.

In a couple of centuries, the world will be one gigantic fascist paradise where freedoms are crushed and everything and everyone will bow to a small aristocratic ruling class that will exploit and strip the planet of all its resources. Oh, and this is not even taking the ridiculous system of fractional banking into account, which will speed up the apocalypse from a few centuries to a few decades somewhat like paying a negative compound interest rate. :sucide:

We are already doomed and riding straight to hell ....might as well enjoy the ride while it lasts.

One way to bring such malpractices under control is to slap them with heavy fine once caught. It is much easier for govt. to do random checks rather than develop a world class industry.

ISRO, DRDO are good institutions but there are also private players like SpaceX which have accomplished much more in much less time. There is no competition between public and private enterprises when it comes to efficiency(on average).

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Agree with most part, but Space X was shepherded into the business by NASA. Space X is an example of why government owned companies are better than private companies.

Every thing in world has pros & cons , If India has strong inland defence sector combination of both Private & Public sector we can avoid dependence on other coutried eg: Bofors , LCA engine . Many major programs came to halt due to sanction or scam

Yes indian companies might and will engage in scams , because in country is model in such a way to get any contract we have to pay under table . But govt comes up strong policy like cutting of subsidy in projects & black list of business both local & oversees etc then things might get under control but completely avoiding scam is not possible in any country in world

IN USA lockheed , boeing etc spend more in form of bribe to get contracts

@pmaitra, good job cherrypicking a couple of government companies which have done "good work", and ignoring the thousands of substandard ones.

And if someone tells me that DRDO is a model to look up to for "good work", I feel like banging my head.

If we had the government sector working on pharma and drugs, we wouldn't even have been able to get anything manufactured, let alone export.

At least when more private companies and more competition, we have something being done. Manufacture happens, export happens. Errant practices need to be clamped down upon, like in this case. Simple.

Certain arms of the public sector such as SBI, have begun to come to speed with the times and are working well only after the entry of private banks and liberalization. Otherwise we would have still been in the 1980s w.r,t. banking services in India.

One way to bring such malpractices under control is to slap them with heavy fine once caught. It is much easier for govt. to do random checks rather than develop a world class industry.

ISRO, DRDO are good institutions but there are also private players like SpaceX which have accomplished much more in much less time. There is no competition between public and private enterprises when it comes to efficiency(on average).

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Privatization was done to increase production, services and more employment in all the sectors and in fact it has changed many things on the ground for the people. You are right that when private companies are caught in corruption huge fines can be imposed on them and i think already such mechanism is placed and in case of Government organizations also there are strict rules for corrupt officials.

At least when more private companies and more competition, we have something being done. Manufacture happens, export happens. Errant practices need to be clamped down upon, like in this case. Simple.

Certain arms of the public sector such as SBI, have begun to come to speed with the times and are working well only after the entry of private banks and liberalization. Otherwise we would have still been in the 1980s w.r,t. banking services in India.

It is a fact that PSUs are by and large, sluggish, terrible in service, and hopeless cases. You cannot cherrypick ISRO and claim that as a victory for PSUs in general. For every successful PSU that you name, I can name ten failures.

Name one private Indian company that comes half as close to DRDO in high tech products.

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How can they, when DRDO operates in a monopoly? What a question!! "High-tech products", my foot!! DRDO is the perfect example of sloppy and useless PSUs, which is just a drain on the economy without substantial return. It is like asking in 1980, "show me one bank that comes close to SBI". It is like asking, "why did Reliance fuel stations fail?". Yeah, don't pass fuel subsidy to private players, give the subsidy benefit only to PSUs, and wonder why private companies aren't able to make a mark.

The opening post clearly indicates what you deliberately avoided. Increased volumes of dud drugs produced to show high profit.

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Individual cases of corruption need to be punished through strong regulatory mechanisms. Infosys was sued for H1B misuse, and for racism once. Now you will open a thread and offer it up as "proof" of how we should not encourage private software companies, and how the government does a great job, and what a big "blow to privatization" this "revelation" is.

It is a fact that PSUs are by and large, sluggish, terrible in service, and hopeless cases. You cannot cherrypick ISRO and claim that as a victory for PSUs in general. For every successful PSU that you name, I can name ten failures.

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Sluggish yes, just like the privately owned Hindustan Motors. Or highly incompetent ones, like Kingfisher Airlines, along with many private payers that came and went.

How can they, when DRDO operates in a monopoly? What a question!! "High-tech products", my foot!! DRDO is the perfect example of sloppy and useless PSUs, which is just a drain on the economy without substantial return. It is like asking in 1980, "show me one bank that comes close to SBI". It is like asking, "why did Reliance fuel stations fail?". Yeah, don't pass fuel subsidy to private players, give the subsidy benefit only to PSUs, and wonder why private companies aren't able to make a mark.

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You still haven't named a single company that comes half as close to DRDO in high tech products, and instead you, ironically, are cherrypicking on DRDO's failures. I get it, you don't have a case.

Individual cases of corruption need to be punished through strong regulatory mechanisms. Infosys was sued for H1B misuse, and for racism once. Now you will open a thread and offer it up as "proof" of how we should not encourage private software companies, and how the government does a great job, and what a big "blow to privatization" this "revelation" is.

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So we all have to have an external agency to monitor the functioning of companies, private or public. I don't disagree with that. Neither do I oppose creating new private enterprises.

Now, answer my question, what is the case for privatization? Do you know what privatization means?

Privatization was done to increase production, services and more employment in all the sectors and in fact it has changed many things on the ground for the people. You are right that when private companies are caught in corruption huge fines can be imposed on them and i think already such mechanism is placed and in case of Government organizations also there are strict rules for corrupt officials.

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Yea, right!!

You do not understand the interplay of industry, politics and the nation's economy, especially in a globalized world. Please take a look at where the US is heading due to unbridled privatization and capitalism. It is a semi-fascist state. Unfortunately due to the collapse of the USSR, the whole world is moving towards a global fascist, totalitarian system and as individuals there is little we can do to prevent that outcome, but at the very least, we should do our part in slowing down the inevitable by fighting for transparency and accountability to the public at large as much as we can.

Sluggish yes, just like the privately owned Hindustan Motors. Or highly incompetent ones, like Kingfisher Airlines, along with many private payers that came and went.

You still haven't named a single company that comes half as close to DRDO in high tech products, and instead you, ironically, are cherrypicking on DRDO's failures. I get it, you don't have a case.

So we all have to have an external agency to monitor the functioning of companies, private or public. I don't disagree with that. Neither do I oppose creating new private enterprises.

Now, answer my question, what is the case for privatization? Do you know what privatization means?

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If private companies like Kingfisher don't do well, they will slowly wither away. If public companies don't do well, they keep sucking blood, leeching off public money, and are force-fed. Air India comes to mind.

Why the silly DRDO question again? Do you know what monopoly means? DRDO operates in a monopoly. DRDO is a failure in spite of being a monopoly.

What exactly do you mean by "privatization"? If you are talking about privatization of PSUs, then frankly, long-term loss-making PSUs need to be privatized. Those that are doing reasonably well can be left alone. We cannot prop up dysfunctional PSUs just for the heck of it, bending down to union demands.

Anyway, if that was the "privatization" you were speaking about, this thread is hardly an example suitable to the discussion. This thread is just about some company that was doing something bad. Why are you bringing in subjects like "privatization of PSUs" and mixing it with this discussion?

You do not understand the interplay of industry, politics and the nation's economy, especially in a globalized world. Please take a look at where the US is heading due to unbridled privatization and capitalism. It is a semi-fascist state. Unfortunately due to the collapse of the USSR, the whole world is moving towards a global fascist, totalitarian system and as individuals there is little we can do to prevent that outcome, but at the very least, we should do our part in slowing down the inevitable by fighting for transparency and accountability to the public at large as much as we can.

If private companies like Kingfisher don't do well, they will slowly wither away. If public companies don't do well, they keep sucking blood, leeching off public money, and are force-fed. Air India comes to mind.

Why the silly DRDO question again? Do you know what monopoly means? DRDO operates in a monopoly. DRDO is a failure in spite of being a monopoly.

What exactly do you mean by "privatization"? If you are talking about privatization of PSUs, then frankly, long-term loss-making PSUs need to be privatized. Those that are doing reasonably well can be left alone. We cannot prop up dysfunctional PSUs just for the heck of it, bending down to union demands.

Anyway, if that was the "privatization" you were speaking about, this thread is hardly an example suitable to the discussion. This thread is just about some company that was doing something bad. Why are you bringing in subjects like "privatization of PSUs" and mixing it with this discussion?

If you recall me mentioning earlier, IISCO was a long term loss making company that went to BIFR. Everyone blamed the unions (the whipping boy). Of course, those idiots were proven wrong when all of a sudden Iraq War started, and IISCO not only paid off its debts, but also went into profit. So this proves that most of these pro-privatization "experts" have no idea what they are talking about.

DRDO is not a monopoly (it might operate in one), in the sense it does not have exclusive permission to develop items. No one is stopping Tata or Mahindra to develop tanks, for example. There is no government ban on private companies developing things DRDO does. Private companies simply refuse to do it. Only recently have some of them started to make forays. Check out the DefExpo thread. So, if private companies are unwilling to pose a competition to DRDO, whose fault is it? It proves my point exactly. Private companies cannot deliver the high tech goods that the DRDO has already delivered. Happy to be proven wrong in the future. As of now, my point stands.

You also seem too be stuck up with DRDO. Is that the only company I mentioned? Why is CLW producing world class locomotives, but the private automobile companies still producing mediocre vehicles, while both have access to foreign collaboration? Any answer?

Privatization means, well, privatization. I am not an inventor of the term. I assumed you knew it, since you responded to the thread. Now it appears you responded before understanding my question. Read on:

Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a nonprofit organization. It may also mean government outsourcing of services or functions to private firms, e.g. revenue collection, law enforcement, and prison management.

If you recall me mentioning earlier, IISCO was a long term loss making company that went to BIFR. Everyone blamed the unions (the whipping boy). Of course, those idiots were proven wrong when all of a sudden Iraq War started, and IISCO not only paid off its debts, but also went into profit. So this proves that most of these pro-privatization "experts" have no idea what they are talking about.

DRDO is not a monopoly (it might operate in one), in the sense it does not have exclusive permission to develop items. No one is stopping Tata or Mahindra to develop tanks, for example. There is no government ban on private companies developing things DRDO does. Private companies simply refuse to do it. Only recently have some of them started to make forays. Check out the DefExpo thread. So, if private companies are unwilling to pose a competition to DRDO, whose fault is it? It proves my point exactly. Private companies cannot deliver the high tech goods that the DRDO has already delivered. Happy to be proven wrong in the future. As of now, my point stands.

You also seem too be stuck up with DRDO. Is that the only company I mentioned? Why is CLW producing world class locomotives, but the private automobile companies still producing mediocre vehicles, while both have access to foreign collaboration? Any answer?

Privatization means, well, privatization. I am not an inventor of the term. I assumed you knew it, since you responded to the thread. Now it appears you responded before understanding my question. Read on:

Statement about tanks is naive at best. It doesn't work that way - simply expect Tata to "develop tanks" and then try to sell it. DRDO has a monopoly on defense equipment manufacture. The system and the regulations are that way. IA goes to DRDO with a requirement, and DRDO mucks it up, taking decades for the most minor of stuff.

I am "stuck with DRDO" because that was the only company you mentioned apart from ISRO. No, you did not mention any other companies. Read your own posts.

CLW is another example of monopoly. Tata, Mahindra, etc. produce good vehicles, what makes you say they produce "mediocre" vehicles? Still in the 1990s?

Statement about tanks is naive at best. It doesn't work that way - simply expect Tata to "develop tanks" and then try to sell it. DRDO has a monopoly on defense equipment manufacture. The system and the regulations are that way. IA goes to DRDO with a requirement, and DRDO mucks it up, taking decades for the most minor of stuff.

I am "stuck with DRDO" because that was the only company you mentioned apart from ISRO. No, you did not mention any other companies. Read your own posts.

CLW is another example of monopoly. Tata, Mahindra, etc. produce good vehicles, what makes you say they produce "mediocre" vehicles? Still in the 1990s?

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I know what I wrote, and I read them again to confirm. It is your turn. Read my posts again.

@Bangalorean, assuming you have read my posts, are you getting a warm and fuzzy feeling now?

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Yeah yeah, it doesn't change the fact that all the companies you did mention work in a monopoly though. SBI changed with the times, due to the advancement of the ICICIs and Citibanks. Will DRDO ever change in our lifetime? Unlikely. Unless you bring in private participation and expose them to competition.

Are we looking at right sample of companies to conclude whether private enterprises can develop advanced technologies? Right now you are debating using Indian companies as an example.

Go to the global scale and you would see huge contribution of private enterprises in most cutting edge technologies. India is yet to move up the value chain in manufacturing, so it is not justified to debate the accomplishments of PSUs vs private players when the latter only got a free hand to operate 2 decades ago(and not yet for many sectors). There is a reason why USSR lost so badly to US in the long run even though they showcased shining technological advancements for a while. And the reason is private enterprise!